1851 Growth Club: When Buying a Franchise, What Can I Afford?

When buying a franchise, what can I afford? 1851 Franchise CEO Nick Powills of 1851 Growth Club (also referred to as “Growth Club”) answers this question and other and financial franchising advice.

For starters, approach franchising with enough financial bandwidth to ensure you are not completely overwhelmed. Deciding the exact budgetary number that entails is a little more nuanced.

In one example from Powills, let's say you buy a $100K service business that requires a van instead of a brick and mortar. You need to pay for the franchise fee, which we will guesstimate at $40K. Then, you need another $60K to make the business operational. Most of this can be financed.

As a basic rule of thumb, you should aim to see a three-year payback on your investment. So, if you invest $100K, you need to make $33K a year in profit to pay off your investment.

You might not be able to afford $100K all at once, but there are other options.

“What I can afford is not all cash-based,” explained Powills. “Sometimes grit or hustle can offset the cash.”

When Powills started his own business, he did so with roughly $10,000 in his bank account.

“But nobody was going to have more hustle than me,” said Powills. “Sometimes the franchisor will recognize that.”

The best way to determine what you can afford is to do your research. Decide what you are passionate about and narrow your search down to a few brands. From there, you can find out how much financial bandwidth you need in terms of the franchise fee, royalties and other fees by looking at the Item 19 in each brand’s Franchise Disclosure Document (FDD). Ensure you consider how you will pay your bills and what level of spending you are comfortable with that will still allow you to scale your business.

“You will know your own risk tolerance, you will know what is in your bank account and you probably will have done some homework on leveraging your 401(k) or your assets,” said Powills.

Still feeling stuck? Reach out to Growth Club to schedule a free consultation for further personalized advice.

To learn more, click here.